The seeming failure of loose monetary policy to reactivate Japan&#x2019;s economy has led some observers to suggest that the usual credit channels through which monetary policy affects the real economy are blocked, and this because of a pervasive shortage of bank capital that has induced a leftward shift in the supply of bank credit: the so called credit crunch hypothesis. This paper finds support for the hypothesis in the 1997 bank data&#x2014;a year during which the landscape of the Japanese financial system was changed fundamentally&#x2014;but finds no, or even contrary, evidence, for most of the 1990&#x2019;s.